[Anonymous]

I’m having trouble understanding the difference between the treatment of loans for investing and financing sections. This is what I have in my notes:

Investing – lending money (cash out); repayment of loan principle (cash in)

Financing – issuance (cash in) / repayment of debt (cash out) **I assume this to mean issuing bonds**

If the above is correct then I understand how it works, but I’m seeing conflict anwsers and its confusing me.

Also, what section would a loan from a bank go in?

Someone clear this up for me please.

[Nbkna2c]

I think I know which questions are causing concern. Be on the lookout for the phrase “purchase real estate with proceeds from bank in CASH” this mean this is investing and financing activity.

Borrowed $550,000 cash (financing activity) cash in

Purchase real estate $550,000 (investing acivity) cash out

Seems weird I know I got stuck too hope this helps! It's not a non-cash item…they borrowed cash.

BEC 78
REG 84
AUD 76
FAR 83

[Anonymous]

Ok Thanks, that does help. But then what does the “lending money and repayment of debt” under Investing activites in the Wiley book relate to? Maybe I wrote that down wrong. I'll have to look back in the book and check.

[Nbkna2c]

Think you are acting as the bank – when you lend money out someone else owes you the company. So say you have $10,000…you could buy stocks in Coca Cola but the markets bad and instead you lending money out and get back a decent rate of return. You're still investing. When they start to pay back your loan the principle payments are cash in investing acivity. Think of the interest collected in the same respect as interest on a CD or even dividends. Those are cash in operating acivities. Hope that helps!

BEC 78
REG 84
AUD 76
FAR 83

[Nbkna2c]

Also, a lot of the times big companies have loans on the books out to employees and suppliers.

BEC 78
REG 84
AUD 76
FAR 83

[Anonymous]

That makes perfect sense. Thanks for clearing that up!

I see that bonds issued increase cash flow on the financing activities and repayment of this decreases cash flow. Does the interest expense on bonds payable hit Operating activities?

[Nbkna2c]

You got it!

BEC 78
REG 84
AUD 76
FAR 83

[Anonymous]

Thanks Nbk, you were very helpful

[Nbkna2c]

my pleasure just paying forward for the help I've recieved here! good luck!

BEC 78
REG 84
AUD 76
FAR 83

[Author]

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